Most investors understand that diversification benefits associated with a multi-asset portfolio could almost disappear during periods of extreme financial stress. The most important case being during the 2008-2009 global financial crisis when the correlations among all risky assets approached one, and only cash and U.S. Treasuries provided some downside protection for such portfolios.
Compliance is one of the fastest growing areas in the alternative investment space, and this is particularly true for the hedge fund industry. Today, surveys indicate that individual hedge funds on average spend at least 5% - 10% of their operating budgets on compliance, and these percentages are expected to steadily increase. As part of an effort to educate managers, firms, and sophisticated investors about the current global hedge fund environment, Jason Scharfman, Managing Partner at Corgentum Consulting, has written a book entitled Hedge Fund Compliance: Risks, Regulation and Management (Wiley Finance, December 2016). The work addresses the changing scope of hedge fund compliance in great detail; this piece is an excerpt.
There has been a long discussion in the financial industry over the optimal horizon for various types of investment. In recent years, the debate has centered on the detrimental impact of the short-term mindset of many public companies, whose decisions are often driven by the need to meet quarterly earnings at the cost of longterm investment. Accordingly, short-termism has the potential to undermine future economic growth, ultimately leading to slowing GDP, higher unemployment levels, and lower future investment returns for savers. This article examines how institutional investors may alleviate short-term thinking, and explores how incorporating long-term metrics is a critical step in this transition to sustainable investing for the future.
The ending of the Bretton Woods accords in 1971 marked the beginning of a long process of financial deregulation and globalization. The financial system continued to evolve and innovate, enabling banks to improve their profitability and market share. But it remains true that innovation, the source of social progress, is a risky activity that has to be managed at the risk of fuelling instability. The history of the last three decades serves as a testament to the adverse effects of unbridled financial innovation. Faced with this threat, a safeguard proved necessary: regulation. This article evaluates innovation from that perspective and provides insight on some of the best means to support future economic growth.
Anurag Sharma is a professor of finance at the University of Massachusetts-Amherst and has recently published a book, Book of Value: The Fine Art of Investing Wisely (Columbia Business School Publishing, 2016). He has a deep perspective on corporate strategy, psychology, and finance and we had a chance to speak with him about these topics and more in Amherst this fall.
In the world that has evolved from the Capital Asset Pricing Model framework, a greater number of systematic exposures have been used to explain asset returns better, and obtain a better regression fit for the data. In these multi-regression models, the market is decomposed into a number of systematic beta factors, instead of just one catchall market beta.
The relationships between these beta factors can be complex, and they are not completely independent. This article explores Value and Momentum factors, which are widely identified in related literature as systematic betas, as well as Quality factors, which are not as well publicized. It will demonstrate that Value and Momentum factors are pro-cyclical with positive market betas, while Quality factors are counter-cyclical with negative market betas. The author notes that most active investment strategies have a strong pro-cyclical element, and therefore, have “betas” in their alphas and he breaks down the implications for managers and investors.
Since 2008, capital flow into fintech investments has grown sixfold. Last year, about $19 billion in capital was invested in fintech across approximately 1,200 deals, nearly doubling funding flows in 2014. At the same time, strategic firms have developed innovation centers of excellence, laboratories, and their own CVC funding vehicles to invest and guide in areas of core interest to these firms. In addition, banks are partnering with fintech, filling gaps and bringing critical experience and enterprise scale to these endeavours. This article comments on the major parts of the financial services ecosystem that run the risk of being transformed by such pioneering financial technology firms.
Over the last four quarters ending in Q1 2016, the median TVPI metrics for North American All PE increased by 2.3%. North American buyout’s median TVPI metrics grew at a slightly faster pace than their venture peers for the 2005 – 2013 period, on average. This overview shows some of the key data for the period.
After a year of decade-high UK economic growth in 2014, expansion moderated somewhat in 2015. The first two quarters of 2016 have seen growth improve on 2015 levels, driven by consumer spending and investment. However, in spite of the encouraging economic growth earlier in the year, the UK’s vote in June to leave the EU has added substantial political and economic uncertainty to the UK outlook. Following the vote many commercial property funds have had to suspend trading in response to capital outflows. This brief report highlights some of the details.